Productivity to boom, says Wadhwani

BRITAIN is set for a productivity boom similar to that of the US, but it does not spell the death of inflation, according to Dr Sushil Wadhwani of the Bank of England's monetary policy committee.

In a speech today to the HSBC Global Investment Seminar, he will also argue that the UK economy has changed, leading economists, including those at the Bank of England, to be overly gloomy in their predictions for the UK economy.

He will say: "I believe that productivity growth is likely to be above average over the next two years, primarily because of the likely response of firms to intensified product market competition, the beneficial effects of e-commerce and the fact that the pay-off from the amount of technology investment that has occurred is due soon."

However, he will add that waiting for the increase to to show through in statistics "could lead to inappropriate policy". The comments from the former academic and fund manager appear to contradict those of his hawkish MPC colleague Stephen Nickell, who claimed this week that a growth in wages will impact on inflation.

Dr Wadhwani, who has voted for no change in each of the past two split MPC votes, will say: "It is less likely that wage settlements will rise significantly." However he will warn that inflation could still be affected by oil prices and exchange rates.

Sterling yesterday had one of its strongest days in weeks, closing up nearly two cents against the dollar at $1.4653. The euro also suffered against the pound, closing down at 59.64p. The trade weighted index of sterling closed at 108.3, compared with a previous day's close of 107.7.